Oil and Gas Lawyer Blog
Commissioner Ryan Sitton has published his proposed conditional order imposing proration on oil production in Texas, to be considered at the Commission’s hearing on May 5.
Commissioner Wayne Christian, in an op ed in the Houston Chronicle, has come out against the proposal.
Sitton’s proposed order is attached to the Commission’s May 5 hearing agenda. His proposal follows the recommendation he described at the Commission’s prior open meeting on April 14. The Commission received 888 comments prior to that meeting, and more than 50 individuals presented live comments during the meeting.
The order would require operators who produce more than 1,000 barrels per month to reduce their monthly production by 20% from their produced volumes in October, November or December 2019, whichever is greater.
The order would not go into effect unless “Complementary Proration Measures” are taken by “Governmental Authorities” to reduce oil production by an aggregate amount of at least 4 million barrels per day, over and above the 9.7 million barrels per day previously announced by the OPEC+ countries. “Governmental Authorities” are the governments of states other than Texas and foreign provinces or countries.
In his op ed, Commissioner Christian noted that Texas produces only five percent of world production, “every major trade association has come out against this policy,” and “Democrats running for Railroad Commissioner” have called for proration, He said he plans “to stick to [his] free market principles and oppose proration.” Instead, Christian has appointed a “Blue Ribbon Task Force for Oil Economic Recovery,” composed mostly of representatives from industry trade associations, to make recommendations on how to save the industry.
Rystad Energy recently reported that six major US shale producers will shut in some 300,000 barrels per day of crude beginning in May: Continental Resources, Cimarex, ConocoPhillips, PDC Energy, Parsley and Enerplus. According to Commission data, Texas produced 4.8 million bbls/day in October 2019, 4.7 million bbls/day in November 2019, and 4.6 million bbls/day in December 2019. Taking account of exempt wells and small producers, Sitton’s order would reduce production on the order of 900,000 bbls/day. It may be that producers will already have shut in enough production to meet that goal by the end of May without prorationing.